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Some hedge funds and other high-level investors get market-moving news up to a minute or so before it's made public, and the implied advantage that gives them over other traders seems patently unfair. But there's also some comforting news that comes from the same research—there is little advantage, it appears, to be had by these insiders in the period before the news of their purchases becomes public.

The findings are included in a working paper from Jonathan L. Rogers at the University of Colorado and Douglas J. Skinner and Sarah L.C. Zechman at Chicago Booth. The researchers documented a lag between the time certain subscribers to the Securities and Exchange Commission's direct feed received insider trading news (Form 4 filings) and when that news was made publicly available on the agency's website. These subscribers are typically hedge funds, investment banks, and news organizations that pay for a direct feed.

The research found subscribers sometimes received, and traded on, the news up to a minute before it became public, as explained by the Wall Street Journal Wednesday. The findings stoke concerns that investment markets are not level playing fields in which individual and small firm investors can achieve the same returns as large, well-connected institutions. The SEC was apparently unaware of the issue, and is now working to fix it.

More comforting to small investors, the study also found that being connected to the feed gave a relatively small boost to trading profits when considered over long horizons. By looking at returns from the time an insider purchase was made through ten days after the news is first posted by the SEC, the researchers found that insiders earn about 20 basis points before the news becomes public, while the total return for the full period is about 292 basis points. Of course, in the world of high-frequency trading, an advantage of even a few milliseconds that generates a few basis points of profit can be economically meaningful.